Technology After Trump's block of Broadcom, what's next for Qualcomm?

09:36 14 march 2018

09:36 14 march 2018 Source:
USA TODAY

Broadcom ends bid for Qualcomm after President Trump nixes deal

Singapore-based Broadcom Ltd withdrew its &dollar;117 billion bid to acquire Qualcomm Inc on Wednesday, two days after U.S. President Donald Trump blocked the attempt citing national security concerns. The company said it has also withdrawn its slate of independent director nominees for Qualcomm's annual shareholder meeting.Broadcom, however, expects to continue with its plan to redomicile to the United States."Although we are disappointed with this outcome, Broadcom will comply with the order," the chipmaker said.Sources had told Reuters on Tuesday that Broadcom was ready to scrap its bid for Qualcomm.

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Qualcomm , which makes the chips in nearly every smartphone, got a reprieve when Trump blocked Broadcom ' s hostile takeover bid. Here' s what could come next .

SAN FRANCISCO — Qualcomm, which makes the chips found in nearly every smartphone, got a reprieve when President Trump blocked Broadcom's $117 billion hostile takeover bid.

Trump White House blocks Broadcom takeover of Qualcomm

President Trump has blocked Singapore-based Broadcom's proposed &dollar;117 billion takeover of U.S. chipmaker Qualcomm for national security reasons. In the order released Monday night, Trump cited "credible evidence" that the takeover "threatens to impair the national security of the United States." Coming just hours after Broadcom CEO Hock Tan met with security officials at the Pentagon in an effort to save the deal, the order follows an investigation by the Committee on Foreign Investment in the United States, which reviews purchases of American companies by foreign investors.

But for the San Diego chipmaker's employees and shareholders — not to mention the owners of iPhones and Androids that contain its ubiquitous cellular connectivity components — the drama is far from over.

The company that's penned many of the key patents in today's smartphones was prey to an acquirer as it fought lawsuits and regulatory fines over how it wielded those patents.

The abandoned deal has also increased stakes for its own $43.2 billion bid to acquire Netherlands-based NXP Semiconductors, which was announced in October 2016.

And it's racing to be integrated into 5G networks before its rivals get the upper hand.

"It will have more competitive pressures than ever as Intel, among others, have put a significant amount in R&D to ensure it is a major player," said Angelo Zino, senior industry analyst at CFRA Research.

Trump White House blocks Broadcom takeover of Qualcomm

President Trump has blocked Singapore-based Broadcom's proposed &dollar;117 billion takeover of U.S. chipmaker Qualcomm for national security reasons. In the order released Monday night, Trump cited "credible evidence" that the takeover "threatens to impair the national security of the United States." Coming just hours after Broadcom CEO Hock Tan met with security officials at the Pentagon in an effort to save the deal, the order follows an investigation by the Committee on Foreign Investment in the United States, which reviews purchases of American companies by foreign investors.

Qualcomm's challenges are many. The company has a massive telecommunications patent portfolio, but some regulators and companies have charged it with attempting to unfairly profit from licensing fees for those patents.

The European Union in January fined Qualcomm $1.2 billion, accusing it of bribing Apple to use its chips in iPhones and iPads during a period when Qualcomm's cellular chips accounted for 90% of the market. Qualcomm plans to appeal.

Qualcomm is also fighting a $1 billion suit filed against it last year by Apple, which accuses the company of overcharging for its wireless chips and engaging in monopolistic tactics. The company is also in talks with Huawei to settle another patent dispute, according to a report last week in The Wall Street Journal.

And support has weakened for Qualcomm management. Early votes in advance of its upcoming shareholder meeting suggested Broadcom's six candidates for Qualcomm's board would have been elected, which could have put executive chairman Paul Jacobs and CEO Steve Mollenkopf at risk of losing their seats, Bloomberg reported. (The presidential order now removes Broadcom's candidates from eligibility.)

Intel might buy Broadcom, which is trying to buy Qualcomm

Intel is feeling threatened by the Broadcom-Qualcomm deal and could step in itself, according to The Wall Street Journal. Sarah Tew/CNET Well, here's a new wrinkle in Broadcom's quest to buy rival chipmaker Qualcomm: Intel might actually try to buy Broadcom. Intel, the world's biggest PC and server chip company, is mulling a bid for Broadcom, a company that makes Wi-Fi, Bluetooth and other connectivity chips, according to a report Friday from The Wall Street Journal. The newspaper said Intel's worried about the power a combined Broadcom and Qualcomm would hold.

Qualcomm has made some recent management moves of its own. Last week, Qualcomm announced that Jacobs would remain on the board but no longer serve as executive chairman. Current board member Jeffrey Henderson was named to a new independent chairman role.

With the Broadcom takeover behind it, Qualcomm "can get back on target," said Larry Townes, project director of the Georgetown Center for Business and Public Policy. Qualcomm is participating in 5G trials already in operation by AT&T and Verizon, with initial deployment beginning this year.

"Evidence suggests that they were making good progress. I think we can be hopeful or optimistic Qualcomm, along with Ericsson, Intel and Nokia can win the race for 5G," Townes said.

Qualcomm (QCOM) shares were down 5% Tuesday to $59.70, about where the stock has remained since Broadcom's bid announced in November.

Broadcom (AVGO) shares closed down 0.6% Tuesday to $261.22.

Qualcomm had repeatedly resisted Broadcom's takeover overtures, claiming they undervalued it. But its protests got a presidential seal of approval Tuesday, when Trump signed an executive order barring the deal over concerns that putting it under control of a company based in Asia would pose a national security threat.

Asia shares mixed on trade outlook, tighter China oversight

BANGKOK - Shares were mixed in Asia on Tuesday following a lacklustre day on Wall Street. Investors are keeping a close eye on tensions over trade following President Donald Trump's announcement of hikes on steel and aluminum tariffs. Shares in Shanghai and Hong Kong fell as China announced a revamp of its financial regulatory regime. KEEPING SCORE: Japan's Nikkei 225 index edged 0.2 per cent higher to &dollar;21,875.43 while South Korea's Kospi added 0.1 KEEPING SCORE: Japan's Nikkei 225 index edged 0.2 per cent higher to &dollar;21,875.43 while South Korea's Kospi added 0.1 per cent to 2,486.31. The Hang Seng in Hong Kong fell 0.3 per cent to 31,507.76 and the Shanghai Composite index declined 0.2 per cent to 3,319.12.

In the Broadcom-Qualcomm case, the administration was concerned that slowed research and development under a combined company could have left an opening for China-based Huawei Technologies to become an even bigger player in the booming market of producing chips that power smartphones, smart home gadgets and other mobile devices.

"The White House is very concerned about China, particularly in terms of upcoming 5G networks where Qualcomm is a key supplier" to the Defense Department, as well as private industry, said Townes.

In January, a leaked Trump administration memo revealed a proposal to build a government-run 5G network as an effort to thwart what the Administration and some lawmakers say is potential Chinese espionage.

The decision was a huge blow to Broadcom, in the process of relocating its legal headquarters to the United States in an effort to assuage those concerns. Trump hosted Broadcom CEO Hock Tan in the White House last year as Tan announced the move to the U.S. planned for April.

"Broadcom strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns," the company said.

It now could possibly make one more offer for Qualcomm once it completes its relocation to the U.S., said Zino.

It could also choose to sue the U.S. government in an attempt to continue its bid for Qualcomm or challenge the process undertaken by the Committee on Foreign Investment in the United States, which reviews purchases of American companies by foreign investors.

But Zino thinks Broadcom will let it go. "I think they are now at the point where they have just had enough of this," he said.

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